By Craig Thorburn, Roberto Rocha, Hela Cheikhrouhou, Heinz Rudolph
This paper offers an evaluation of the funded pension method and the standard of the regulatory framework for either accumulation and payout section. It means that the inability of portfolio diversification might give a contribution sooner or later to low returns and negative pensions and gives a few suggestions to extend the possibilities of investments to pension money. The paper additionally unearths that pension fund directors will not be exploiting the dimensions economies in sure components of the company similar to selection of sales and account administration, and proposes mechanisms to minimize expenditures and bring up potency via larger festival. The paper examines the goods and concepts provided at retirement age and reveals a bias towards the fee of pensions within the kind of lump sums and indicates choices for making improvements to the provision of different tools. improvements to the regulatory framework of insurance firms also are proposed.
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Extra resources for Financial Sector Dimensions of the Colombian Pension System (World Bank Working Papers)
Example text
The return competition that is observed is one of the positive aspects of the Colombian system, but the systematic over-performance or under-performance of some AFPs has resulted in only modest changes in market shares, indicating that consumer inertia is also substantial in Colombia. Colombian policy-makers face the challenge of promoting more price competition among AFPs, and ensure a sharper reduction of costs and fees. The efforts of other reforming countries to reduce costs and fees through regulation and/or more radical changes in institutional arrangements will be reviewed in Chapter 6.
02-Dec. 051 funds. 4 selected. 2 tween the two countries may be partly explained by the dif1 Note: Period since the introduction of multi-portfolios. ferent design of the Minimum Source: SAFP. Return Guarantee (MRG). As discussed in more detail in Chapter 3, Chile has maintained the same relative return guarantee since the introduction of the new system, while the guarantee in Colombia is a hybrid formula that includes a synthetic portfolio. Moreover, Colombia has adopted a more flexible approach in its implementation, including broader bands and a longer assessment period.
This construction may lead AFPs to select portfolios that may not be optimal in the long-run (see Box 2). Box 2. Solvency Requirements and the Safety Net The use of risk weighted capital requirements may encourage investments in Treasury bonds, as these instruments impose lower costs for the shareholders of AFPs. AFPs need to constitute a solvency margin of 1/48th of risk weighted assets, with zero weight for government instruments. The use of risk weighted capital requirements promotes investments in low risk portfolios, which may not be optimal from the perspective of the perspective of promoting good pensions for retirees.